Understanding VA Loan Closing Costs

For some, the homebuying process might seem overcomplicated and expensive. But many veterans don’t know they can already afford to buy a new home for their family. They have special access to loans backed by the Department of Veterans Affairs (VA). These are usually the best option for homebuyers because they currently do not require you to get private mortgage insurance, and closing costs for a VA loan are typically lower than they are for conventional or FHA mortgages.

What are the Typical Closing Costs for a VA Loan?

VA loan closing costs are typically far more affordable than for other mortgages: the typical VA loan has between 3-5% of the overall loan amount in fees. If you qualify and are approved for a VA loan, one advantage is being exempt from paying certain closing cost fees, which means you may pay less out of pocket.

What is Included in the VA Loan Closing Costs?

As discussed above, you can still expect to see the following costs on your loan estimate:

• VA funding fee: This is charged by the VA and helps keep VA mortgages available for future service members. For VA-backed purchase and construction loans, the funding fee may be between 1.25% and 2.15% of your loan amount, depending on a number of factors. Don’t fret if you are accessing the program for the first time – you will pay less than repeat borrowers.
• Discount points: You may choose to pay your lender more upfront in return for a reduced interest rate.
• Origination fee: This fee is charged by the lender, and covers the costs associated with originating your mortgage. For VA borrowers that qualify, it is capped at 1% of the loan amount.
• Third-party fees: These may include costs associated with homeowner’s insurance, title insurance, and reports for credit or identity verification.

Who Pays Closing Costs on a VA Loan?

Closing costs for a VA loan are typically the buyer’s responsibility, though the seller may choose to include concessions in your contract to cover these. Even if they are obligated to pay them, many qualified borrowers are more than satisfied with paying VA loan closing costs since a down payment was not required for their new home.

Can You Change or Lower Closing Costs for VA Loans?

While it may not be an option to remove some closing costs from your loan, there are three typical ways VA borrowers lower their closing costs.

• Seller Concessions. The seller is already obligated to pay a list of their own fees when selling their home. If you have a good relationship (or leverage) with your seller, you might ask them to include some of your costs in their concessions while you negotiate your deal.
• Assistance Programs. There are third-party grants and loans to veterans who are looking for assistance in buying their home. Remember if you take out a separate loan to pay closing costs to your mortgage lender, you will have to make payments to two different parties each month.
• Finance Your Closing Fees Into Your Loan Total. If you do not have the cash to pay your closing costs, you may choose to bundle them into your total loan amount.

More on Closing Costs for VA Loans

For those who put themselves on the line for their country, VA mortgages are one of the most prized perks. Every year thousands of veterans secure their new homes, safely housing their families in all 50 states.

The Federal Savings Bank proudly employs many veterans focusing on VA loans. To speak with a loan officer about your path to homeownership, no matter your credit history, give us a call at +1 877-788-2520.

Subject to credit approval. Terms and conditions may apply. Subject to VA eligibility requirements. Property insurance is required on all loans secured by property.